ifo Center for Macroeconomics and Surveys

Projects in Economic Policy Analyses

The Center employs various methods to study the efficiency, welfare and stabilising effects of economic policies from national, European, and international perspectives. Researchers in this area conduct ex-post analyses using both macro and microdata to assess the impact of implemented reforms. Ex-ante analyses address the effects of reform proposals for the German tax-benefit system, fiscal policies in other EU member states, as well as the economic effects of fiscal integration in Europe using (behavioural) simulation models. These include ifo’s tax-benefit microsimulation model for Germany (developed together with the ifo Center for Public Finance and Political Economy), EUROMOD, the tax-benefit microsimulation model for the European Union and the NBER’s TAXSIM model for the US. These models allow micro-based analyses of changes in tax and transfer policies and the simulation of counterfactual policy reforms. Based on the results of these empirical studies, researchers develop policy recommendations for designing efficient and equitable tax and transfer systems.

The Center has actively contributed to the current debate about euro area reforms through various research projects and policy papers. It has published papers studying the economic effects of different fiscal union scenarios, for example of a common unemployment insurance scheme in the euro area. Researchers in this area have examined public attitudes towards those reforms by means of randomised survey experiments. In another policy-relevant project, the Center has developed the first dynamic scoring framework for modelling and analysing tax and benefit reforms for all EU countries together with co-authors from the European Commission and its Joint Research Centre. To this end, the researchers involved have combined EUROMOD with QUEST, the European Commission’s dynamic stochastic general equilibrium (DSGE) model used for the analysis of structural reforms. This work has a direct policy impact, as the newly developed framework will be applied by the European Commission within the context of the European Semester in the future.

Another research area is the European Central Bank’s monetary policy and its impact on financial stability and the overall economy. Furthermore, the Center’s research focuses on the reform process of financial sector regulations, particularly with regard to the European Banking Union.

Macroeconomic Research

The Center´s macroeconomic research primarily investigates the causes and economic impact of macroeconomic shocks and deduces their implications for applied business cycle analysis. Thematically, its work focuses on the influence of financial market frictions and uncertainty, as well as the impact of monetary and financial policy measures on real and financial variables. Many questions are drawn from experiences and observations related to the global financial crisis and the euro crisis. As far as methods are concerned, both theoretical approaches like, for example, DSGE models, and empirical time series approaches such as VAR models are used. The survey data collected by the ifo Institute is often used in empirical work. Financial constraints and business uncertainty, for example, are identified using special questions from the ifo Business Survey at the firm level.

In the area of forecasting methodology, the Center primarily concentrates on processes of information condensation and selection against a background of the enormous amounts of data available to the forecasters (partly as a result of ifo´s own surveys). For example, this area investigates whether microdata from business and surveys are suitable for forecasting macroeconomic time series. In addition, alternative condensation procedures for microdata on participants, industries and regional delimitations are examined. One example is boosting techniques that enable the identification of core information (e.g. firms with a high forecasting quality). Furthermore, processes like Bayesian model averaging or models with mixed frequencies are examined for their suitability and are further developed.

Inequality and Redistribution

The Center also investigates trends in income and wealth distribution, as well as other indicators of inclusion and equal opportunity. Using a variety of econometric techniques, the Center conducts microdata analyses to explore trends in wealth and income distribution, and to identify the causal effects of tax and transfer policies.

Particular attention is devoted to the empirical analysis of equal opportunity and regional differences in inequality. In addition, researchers analyse potential drivers of changing inequality like globalisation and demographic change, and especially the role of tax and transfer systems. Individual preferences regarding redistribution and attitudes toward “fair” tax systems are additional areas of research. Based on these studies, researchers provide policy advice for reforms of the tax and transfer system to improve equality of opportunity.

The Center also provides services in the form of survey data and methodological expertise, as well as business cycle indicators and macroeconomic forecasts. The Center’s “ifo Business Climate Index”, a monthly survey of 10,000 German firms, receives considerable public and media attention as Germany’s most important leading business cycle indicator.

ifo Business Climate Index

A key service function of the Center is conducting and interpreting business surveys. The regularly collected data not only constitute an integral part of the ifo Institute’s economic forecasts; they also form the basis of industry and aggregate economic forecasts of businesses, industry associations and government agencies. The survey results are extensively discussed and interpreted in the media. In economic research, microdata derived from ifo business surveys play an important role in testing economic behavioural patterns – for example investment and employment behaviour, labour market trends or pricing policies. The Institute’s excellent reputation in the area of business surveys is also confirmed by the fact that the surveying techniques developed at the Center are currently used in over fifty countries across the world. The regular surveys are also part of the harmonised European Commission Business Surveys Framework from which the Center receives considerable funding. The Center delivers monthly parts of its aggregated survey results, which are then included in the European Sentiment Indicator.

Survey Results

The Center’s economic forecasts are based on on-going observation and analysis of economic developments, taking the survey results and the constructed indicators into special consideration. Numerous empirical models are used in its forecasts. For the short-term forecasts, approaches are typically applied that suitably compact and employ information from timely indicators in forecasting. Examples are bridge equations, vector-autoregressive (VAR) models, factor models and models of mixed frequencies. For a forecast horizon of over 2 quarters, more structural time-series methods and macroeconomic models are used. In recent years the Center has set-up the so-called ifo-DGSE model for Germany, which simulates the German economy as part of the euro area in the framework of an estimated micro-founded, structural multi-country model. This model is not only used for forecasting, but is also adopted in policy simulations. To ensure that its economic forecasts are scientifically sound, the Center’s models for the analysis and forecasting of business cycle are constantly examined with regard to their practical suitability. Based on the Center’s own research, the models are regularly improved and new developments in forecasting methods are implemented.

Economic Forecasts

Prof. Dr. Benjamin Born, Associate Professor of Economics, Frankfurt School of Finance & Management

Prof. Dr. Carla Krolage, Professor of Economic Data Science, University of Regensburg

Prof. Dr. Maik Wolters, Professor of Economics, Christian-Albrechts-University Kiel Institute of Economics

Prof. Dr. Rüdiger Bachmann, University of Notre Dame

Prof. Dr. Almut Balleer, RWTH Aachen 

Prof. Dr. Kai Carstensen, Christian-Albrecht-University of Kiel 

Professor Georg Dürnecker, Ph.D., Goethe University Frankfurt

Prof. Dr. Gernot Müller, University of Tübingen  

Prof. Dr. Christopher Roth, University of Cologne

Prof. Dr. Dominik Sachs, University of St. Gallen 

Prof. Dr. Jan-Egbert Sturm, ETH Zurich  

Prof. Michael Weber, Ph.D., University of Chicago

Johannes Wohlfart, Ph.D., University of Copenhagen

Prof. Dr. Steffen Henzel, Hochschule für angewandte Wissenschaften

CESifo Area on Macro, Money, and International Finance